Mortgage Vs Home Equity Loan

By Petra Amelia on September 12th, 2007

Although, a second mortgage is a kind of a home equity loan and similar to a second mortgage in many ways, they are both different in their own individual ways. Hence, very often many people tend to confuse home equity loans with second mortgages. A home equity loan refers to the home equity line of credit or HELOC. You can take advantage of the equity that you have built up on your home either through a second mortgage or a home equity line of credit.

However, before you finally decide which one suits your requirements better, you need to be aware of the essential basics of each type of loan. A second mortgage allows you to borrow a fixed amount of money which has to repaid within a fixed time period, very much like the first mortgage that you undertake. Unlike in the case of refinancing, the second mortgage does not succeed or replace the initial mortgage.

Second mortgages are generally characteristic of fixed rates of interest that are payable over a span of fifteen to thirty years. Like any other traditional loans, they are greatly dependent on factors like the interest rate, your credit score, the equity of your home and the like. Usually, the rate of interest of second mortgages tends to be high as compared to HELOC but the fees are low.

On the other hand, a HELOC operates very much on the principles of a credit card. In many cases, the borrower is even given a credit card which enables him to borrow as and when needed. Just like in the case of credit cards, the user of HELOC is also charge with interest. In order to evaluate whether you are eligible or not for a home equity line of cordite. Your credit worthiness needs to be evaluated and asserted. In order to establish the credit limit of you home equity line of credit, lenders take in to consideration various factors including the value of your home which is determined after an appraisal is done by experts.

Depending on your requirement and other financial resources available to you, you need to accordingly weigh the pros and cost of each type of home loan and then opt for the most feasible financial solution. If you need money only once, then the fixed rate second mortgage would be the ideal loan for you.

But if you need to keep borrowing money every now and then, then a home equity line of credit would be a more flexible alternative for you. A HELOC allows you to borrow money when ever the need arises and besides, if you repay the borrowed amount back on time, then same amount becomes available again for use.

Share This